School Stocks: Winners & Losers

Stocks in the for-profit education sector were mixed on Tuesday, with shares of Bridgepoint Education outpacing the sector and Corinthian Colleges lagging.
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NEW YORK (

TheStreet

) -- Stocks in the for-profit education sector were mixed on Tuesday, with shares of

Bridgepoint Education

(BPI) - Get Report

outpacing the sector and

Corinthian Colleges

(COCO)

lagging.

For-profit schools traded sharply lower over the summer when the U.S. government proposed regulations that were seen as hurting the industry's booming earnings growth.

The

S&P 1500 Education Index

, which tracks the industry, dove 34% from June through August, a retreat that began after the Obama administration announced June 16 that it would seek regulations aimed at stanching for-profit schools' high rate of student-loan defaults and curbing their aggressive marketing practices.

>>Corinthian Miss Drags on School Stocks

That was followed by a series of proposals to meet those objectives from the Department of Education, including one that would reduce schools' ability to make federal loans based on the rate of their students' loan defaults.

On Tuesday,

Corinthian, which operates Everest colleges, led the group in terms of share price declines. Corinthian shares tumbled 7.3% in afternoon trading after the for-profit school announced its president and COO, Matt Ouimet, plans to resign at the end of this month.

Ouimet held his position for nearly two years, since January 2009, and said he is leaving to pursue other opportunities.

"The decision to resign has not been an easy one, but for personal reasons I have chosen to pursue other opportunities," Ouimet said.

Corinthian has no immediate plans to fill his post.

Other sector laggards in Tuesday trading included

Lincoln Educational Services

(LINC) - Get Report

, down 5%,

Education Management

(EDMC)

, down 2.4%,

Strayer Education

(STRA) - Get Report

, down 2.7%, and

ITT Educational

(ESI) - Get Report

, down 2.6%.

Bucking the trend was Bridgepoint, which jumped 6%,

Grand Canyon Education

(LOPE) - Get Report

, up 1%, and

DeVry

(DV)

, up 0.4%.

Citigroup analyst James Samford initiated coverage of the for-profit education group Tuesday morning, rating favorably those that focus on online education programs and negatively those more focused on traditional school settings.

Samford's buy-rated stocks included

American Public Education

(APEI) - Get Report

, Bridgepoint,

Capella Education

(CPLA) - Get Report

, DeVry and Grand Canyon.

The analyst's hold-rated stocks included

Career Education

(CECO) - Get Report

, Corinthian and ITT.

He noted that the group overall is an "attractive long-term growth opportunity," with the best upside primarily in online schools. He estimates that half of the 8 million students expected to take at least one course in 2015 will do so exclusively online, compared with 40% out of 5 million in 2009.

Analysts from UBS also initiated coverage on the for-profit education group Tuesday, according to data from

Briefing.com

.

Washington Post

(WPO)

, which operates Kaplan programs, along with Grand Canyon and American Public Education, were rated buy with price targets of $475, $35 and $45, respectively.

Coverage of Strayer, ITT, DeVry, Corinthian, Career Education and

Apollo Group

(APOL)

were initiated with neutral ratings.

Separately, Apollo Group is due to report its quarterly earnings on Wednesday. The University of Phoenix owner is expected to book earnings of $1.30 per share on revenue of $1.26 billion.

Repayment rates at for-profit schools were just 36% in fiscal 2009, according to research from the Institute for College Access and Success, a student-advocacy group. At private nonprofit schools the repayment rate was 56%, and at state colleges and universities the rate was 54%.

Under the Department of Education's proposed "gainful employment" rule, federal aid would be cut for schools where less than 45% of students are able to repay their loans. Additionally, schools would only be eligible for federal aid if student debt remains below 8% of total income or below 20% of discretionary income.

The Higher Education Act of 1965 requires that programs in need of federal aid provide their students "gainful employment in a recognized profession." Since as much as 90% of for-profit schools' revenue is tied to government loans, losing the right to offer them would be devastating to earnings.

-- Written by Miriam Marcus Reimer in New York.

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